ABOUT SEAN STANNARD-STOCKTON

Sean Stannard-Stockton is the president and chief investment officer of Ensemble Capital Management, located in Burlingame, CA, midway between San Francisco and Silicon Valley. From 2006 through 2012, Sean authored the Tactical Philanthropy blog and wrote regular philanthropy columns for both the Financial Times and the Chronicle of Philanthropy. In 2012, Sean officially ended the blog to focus on growing Ensemble Capital.

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Investors vs. Donors II

February 28, 2008 – 12:36 pm

Yesterday I asked some questions about why donors behave differently from investors. The feedback has been wonderful. I’ve posted excerpts below (you can read the full comments here). I’d love to get additional comments on this issue. I’ll be posting my further thoughts on the topic soon.

Amy Sample WardI have a hard time reconciling the contradiction of all the hard work, time, energy, etc that program staff put in for the up-front due diligence in reviewing a proposal and then, if they find that the organization’s project isn’t one that the program staff and trustees decide to grant because of the information discovered in the due diligence process, the decision and background information informing the decision isn’t shared. When it is a corporate entity, people always advocate for openness and the opportunity for the public to say both good and bad things so that the company will publicly explain why and how for their good and bad press. But with nonprofits, and grantmaking, it’s a closed circuit.

Pete ManzoThe clear sense I have received from many foundation presidents and program officers is that they do indeed talk about the nonprofits they do and don’t fund, among their peers. They clearly do talk, they just don’t share their perceptions with the broader public. So I interpreted your question to be why don’t foundations share their positive and negative perceptions outside of their private conversations. One reason might be not wanting to harm grantees, as the program officer you interviewed mentioned. Another reason may be that they don’t want to publicly stand behind what they say in private, or more likely, don’t want to put their foundation “on record” for their views; they may not feel they would have the foundation’s support if there is a backlash, and also, just imagine trying to work through a foundation’s governance and communications channels to get approval for making those kinds of statements.

Renata RaffertyIt’s all about what I call “The Tyranny of Nice.”

1. Philanthropy in our society is frowned upon if it is considered self-serving. Therefore, to boast about one’s wise philanthropic investment “picks” would be, well, boastful and self-serving.

2. Donors and institutional funders have two different reasons for not spreading “the bad news.”

Donors don’t do it because they do not want to insult, offend, or upset board directors and executives who may be their neighbors, friends or business associates whom they have to face. Why would a donor risk PO’ing a group of people in order to “save” the greater community of the faceless from making an unwise donation.

Foundation’s don’t do it because it doesn’t jive with the essential philanthropic resolve –the world can and will be a better place, and even poorly-performing charities hold the promise of getting better if they are not buried first.

Also, as foundations routinely deny grants for a host of reasons, publicly showing cause in some cases and not in others would cast doubt on ALL denied grantees — not to mention creating a whole lot more work for foundation staffs.

“young staffer”Foundations might damage relationships with all their grantees if they start publicly criticizing those that encounter problems. My colleagues and I want our grantees to come to us with problems and challenges; if they don’t, we can’t help them (and we also can’t do any damage control with our own board if things are really getting rough). Foundations have a hard time building honest and open relationships with nonprofits because of the power dynamics. If you become the foundation that might “out” a struggling grantee and hurt or kill their fundraising, you stand to lose that trust. Now you’ve got grantees covering up problems. That makes it harder to be a good grantmaker. It’s also scary – foundation staffers worry about backing a grantee to their board that ends up on the front-page of the newspaper for its problems.

So criticism of grantees potentially hurts a lot of grantee/funder relationships, which makes a foundation staffer’s job harder both in terms of supporting their grantees and being responsible to their board.

A lot of nonprofits are fighting an uphill battle and doing it with the best intentions. They are under-capitalized, the staff are underpaid and overworked, and they are trying to serve the public. Criticizing them in public can feel like kicking a dog when it’s down, even if the results would be a more effective sector in the long run. You’ve already denied funding, which hurts. It’s hard to then advocate that others should deny funding too when you know these people mean well, face tough circumstances, and are probably meeting a need for some community members. Even if you think it’s not fixable, do you really want to tell a well-meaning staff that its efforts are not worth it and then turn to the people they are serving and say they should look elsewhere?

I think Sean’s first question, then, is the most interesting. Foundations and donors actually don’t do enough to tout their successes and to make a strong, public case championing the relative effectiveness and strength of their best grantees. It’s not just that the grantees did all the work; it’s that we talk only about how our grantees do good things and yours do too. I think it would be way easier to get the ball rolling towards more criticism if it started from a place of making a case for the best social investments rather than highlighting the worst.

Maggie F. KeenanWhy do investors take credit for picking great investments (”look how smart I am, I bought XYZ stock!”)…because they have something to sell!

While philanthropists, especially foundations, claim that the credit goes to the nonprofits they fund (”the grantee did all the work”). I whole heartedly concur with Renata… we are not self-serving.

Why is it acceptable for investors to talk about investments they think are bad (”Don’t buy ABC stock, their management is terrible!”)… because their marketplace is competitive.

While philanthropists never badmouth nonprofits, even if they think they are ineffective? Who told you they don’t? They do internally and I am certain info is shared among circles. My FAVORITE WORD MOKITA -a New Guinea word for “the truth that everyone knows but speaks nothing of.”

Tidy SumAs noted, foundations DO talk about crappy nonprofits all of the time. It is part of in the old due diligence handbook that you have buried next to that bottle of Jack Daniels in your desk.

Foundations, if they do their work well, also talk pretty frankly with other nonprofit organizations.

Got NPO gossip? The nonprofit community LOVES to dish about their peers, their competitors, their collaborators and non-collaborators.

And those of us who suffered through a typical philanthropy conference find that the syrupy self-congratulatory vibe is filled with funders/donors patting themselves on the back about their latest and greatest investments, discoveries, and grassroots heroes of the day.